As I make it a point never to watch Obama speak, as I am tired of the Obama barrage, I hope VodkaPundit Stephen Green will by “drunk blogging”. If I can, I will update everyone on where live-blogging of the speech will be.

Speaking of updates, here are some essential ones — before I get to the meat of my post.

* The Repeal AB32 Petition Campaign (California’s version of Cap-and-Trade) launch date has been pushed back to February 9th. According to Eric Eisenhammer, There’s nothing to be alarmed at, the Attorney General is simply taking longer than expected preparing the title and summary, so a little extra time is needed until those items are received. Then, the formatting of the petition must be thoroughly reviewed by the legal team.

Two of the topics that are night likely to come up, because they are truly concerns of the average American, are the success of the Toxic Asset Relief Program (TARP) and fed Head, Ben Bernake. I have had many people interested in the opinion of the success of both the program and the man. Happily, Professor Athena has stepped in with some savvy analysis (NOTE: She is a high-level executive in a major financial institution). Without further adieu:

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Help Wanted: Nancy Pelosi Purse Snatcher

As the President of our United States prepares his er…telepromter for the upcoming annual State of the Union message, two things I predict you will hear:

1. A newer, more strident Obama.
2. Stimulus “help” for middle Americans (but of course the word “stimulus” will not be used.

Expanding upon point number one, there will be a lot said about Wall Street and “The Banks”, because the notion in Washington, D.C. political circles right now is that the average American would really love to see this group punished. While I cannot condone the obscene amounts of money paid out in bonus pools and which have been much-reported in the media, a few points for serious consideration.

“TARP” was the original temporary (emphasis on the temporary) liquidity loans paid out prior to the end of 2008 as President Bush was leaving office. During a 6-month time frame not one but two major primary dealer firms had gone belly up. Liquidity loans, the majority of short financing which is done in the overnight to 90-day sector, dried up. The liquidity that generates the nation’s payrolls, their credit cards, their inventory, even their state and city services, was not getting done in the wake of massive contraparty risk in the financial markets. This was the original “TARP” which lent (not gave) money to banks in order to facilitate short-term financing markets. The majority of this money has already been repaid, and the remainder will not come due until 2013, at which time this original “TARP” looks to be repaid in full to taxpayers with interest. So much for media understanding. This has not been reported or remarked upon in the rush to vilify bankers. Instead, you will likely hear in the State of the Union speech more said about the proposed fines to banks who engage in “derivatives” or who own firms that do.

While the fines on “derivatives” seem to initially at least make sense to the average person, this is another example of politicians who want to “cut the sausage from both ends”. Politicians are blaming banks for not lending, when demand is a fraction of what it was before 2008. Not only that, all loans now require a greater loan loss reserve and FDIC premiums due to increased risk. Add that to potential fines for using bona fide hedging vehicles in order to prevent margin erosion (a serious risk in the current low-yield asset environment), and you have bankers who basically now are punished from all sides for just making loans as opposed to taking in fees for a service. Who needs that hassle? If what the administration really means is “punish sophisticated investment banking firms who use their capital to run their dealer operations and in so doing trade borrowed capital for their own accounts”, then let them actually mouth the words “no credit default swaps unless you own the underlying company” and be done with it. Fact is that their buddies at Goldman Sachs are not about to stop such lucrative business and are already in conversation to shed their banking units so as to avoid being under the “bank” fines.

Bernanke, who may or may not be sitting in a “place of honor” during the State of the Union speech, was who came to the rescue in form of liquidity management (and did a fine job of it), despite not seeing the danger in the asset bubble along with the inherent risk in structured leverage being splashed around Wall Street. As Fed Chairman, maybe he felt it wasn’t his job initially to manage the inner workings of Bear Stearns. Maybe it should have been? If you have to blame someone, there are plenty of other agencies to point to. Why is it we only talk about the banks and not the security dealers (not under the Fed’s regulatory oversight) who actually did cause the meltdown? While we are at it, why do we not talk about the real ramifications of deregulation of Glass-Stegall, which is that deregulation allowed places like Sears and General Motors to act like residential lenders when they had no experience in that type of underwriting and lending directly to consumers? When they were approving loans over the telephone without conforming to any known industry underwriting standards, was Bernanke looking over their shoulder? Was the FDIC? The answer to this is “no”. There were only state regulators, none of whom were trained to understand what was taking place. While a few banks’ consumer units did some of this type of lending, it was by a huge percentage done by the non-bank mortgage corporations. Subprime lending was the catalyst but not the only cause of the financial calamity. In many ways, the job of a central banker is fire management. Yes, he was supposed to perhaps do a better job making their money more expensive at the very least. The Fed helped fuel an asset bubble beyond “froth”. But the markets believe Bernanke (a bona fide genius and MIT grad) is the best man for the job. The markets unlike politicians are not usually wrong about what is the least risky course of action. If it is the markets and recovery in the economy we are talking about (and I think it is, even among those formerly preoccupied with taking over health care), then Bernanke is the best man for the job at this point.

Finally, point number two will be incentives dangled at votes. Despite some talk about several hundred billion in “spending freezes”, don’t look for any significant reductions to the federal deficit (now some 9 trillion not counting Social Security and Medicare). The next time someone points out the halcyon days when we had a “balanced” federal budget under President Clinton (which in Washington, D.C.-speak means a balanced current account not including unfunded mandates for Social Security and Medicare), remind them we had a Republican Congress who didn’t spend money like it was in endless supply. It is indeed Congress which controls the purse strings, and in the case of the current one, I am reminded of an old joke about the guy whose wife’s credit card is stolen, but who won’t turn in the thief because he’s spending less every month than his wife did. We might indeed be better off here if someone would only steal Nancy Pelosi’s purse.

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